Worn in the USA

POLITICS:Many ordinary Americans are finding it hard to survive, and their economy is under threat from China and India. But as long as money dominates the political system, can anything really change?

Time to Start Thinking: America and the Spectre of Decline By Edward Luce Little, Brown, 292pp. £20

MARK AND CONNIE FREEMAN both work full time at Park Nicollet Methodist Hospital, in a suburb of Minneapolis. He is a warehouse packager and she is an anaesthesia supply technician. Mark works part time in a liquor store to supplement the family income, which fell from $70,000 to $50,000 in the space of a year after he lost another part-time job. The Freemans are still paying their mortgage on a home that is now almost worthless, and with just $70,000 in savings, they calculate, they will never be able to retire. They worry about staying healthy enough to keep working and about the catastrophic financial impact of any future medical crisis and fret constantly about the future of their 22-year-old autistic son, Andy.

The Freemans are far from exceptional. As Edward Luce notes in this lively and insightful study of the condition of the United States, their situation is “disturbingly normal” in a society where those on low and middle incomes have paid the biggest price for the loss of national competitiveness. The middle class (which in the United States includes the working class) is getting poorer and more insecure every year while the richest Americans capture an ever bigger share of the nation’s wealth. In the last full business cycle, between 2002 and 2007, the top 1 per cent of Americans captured almost two-thirds of all economic growth, and the top 0.1 per cent took more than a third. During the same period, the median American household saw its income decline by $2,000.

Luce, who is chief Washington correspondent of the Financial Times, identifies the condition of the United States’ middle class as the truest measure of its economy and the ultimate gauge of the strength of its democracy. It is also the most painful symptom of the United States’ relative decline, which has seen its share of the global economy tumble from more than 30 per cent in 2000 to 23.5 per cent a decade later. Time to Start Thinking combines extensive reporting from throughout the US, including interviews with CEOs, senior military officers, academics, scientific innovators and working Americans, with an unsparing analysis of the country’s approach to education, innovation, immigration and government. It draws its title from the remark attributed to the physicist Ernest Rutherford when he took over the Cavendish Laboratory, in Cambridge, after the first World War: “Gentlemen, we have run out of money. It’s time to start thinking.”

Luce finds plenty of fresh thinking, from the officers at the National Defense University who argue for big cuts in military spending and the ceding or sharing of domination over large parts of the world, to the campaign of Dean Kamen, inventor of the Segway, to make maths and science attractive to US teenagers. Unfortunately, very little of it comes from Washington policymakers, most of whom remain trapped in an orthodoxy that puts its faith in free trade, low taxes, light regulation and a modest or shrinking state. The US is losing its economic struggle with China, which is set to overtake the US economy by 2020, according to the latest projections. But General Electric’s CEO, Jeff Immelt, complains that anyone suggesting that the government should take a leading role in helping the country’s private sector to compete will get short shrift in Washington.

“It is okay not to believe in industrial policy when you are the only player on the world stage,” he said. “But when your biggest competitor is China then you are confronted with industrial policy on steroids . . . Should you continue in the belief that industrial policy is only for the weak?”

Luce is reminded of the debate in Britain around 1900 when that country’s elites realised it was being outpaced by the US and Germany. Instead of questioning its long-standing commitment to free trade or copying Germany’s vocational education system to boost skills in science and engineering, Britain launched into a round of budget cutting that did nothing to slow its decline.

American optimists have two stock responses to those who argue that the country is in decline. One is to recall the “Japanic” of the early 1990s, when many analysts predicted that Japan’s mix of economic planning, hard-working and thrifty citizens, dedicated students and competitive exporters was set to ensure a sustained economic surge at the expense of the United States. After two decades of economic slump in Japan, few Americans fear Tokyo, and the optimists point to the weaknesses in China’s economic and political system that could trip up that emerging giant on its way to eating the United States’ lunch.

The second argument is that, despite its faults, the US remains the most innovative economy in the world, home to the top universities and the best scientists. It leads the world in software, biosciences, social media and computer-chip technology, and everyone agrees that companies such as Google and Facebook could emerge and thrive only in the US. Here too, however, it may be in danger of losing its competitive edge, not least because many of the scientists and engineers who come to the US to study are choosing to go home after they qualify rather than make a career in the United States. This is partly because of the restrictive immigration policies introduced after 9/11 but also because pay and prospects in countries such as India and China are starting to match or even beat those in the US. Meanwhile, a more cautious generation of venture capitalists is reluctant to take a risk on start-ups that have yet to prove themselves, slowing the path to market for today’s innovators.

If the decline of the US is a cause for concern, the failure of its politicians and policymakers to respond to the change in their country’s fortunes is more worrying still. Luce describes a political system that is so determined by money that senators and congressmen spend most of their spare hours attending campaign fundraisers or “dialling for dollars” to ensure that they have enough cash to frighten off potential primary challengers. Among voters, Luce sees a deadly combination of apathy and fanaticism, with the fanatics best placed to shape policy – or at least to block the measures necessary to revive US fortunes.

Barack Obama has shown little inclination as president to embrace radical change, and special interests have been at least as influential in the White House during his tenure as under his predecessors. His challenger in November, Mitt Romney, promises to double down on the economic policies that have helped to accelerate US decline, and both candidates remain wedded to the increasingly improbable rhetoric of American exceptionalism. Both Obama and Romney would do better to heed the lessons of Luce’s book, which should be essential reading for anyone who cares about the fate of the US and its consequences for the rest of us.

Denis Staunton is Deputy Editor. He was Washington correspondent from 2005 to 2009